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Table of contents
Which Taxes Exist in Hong Kong and Which Do Not?
Hong Kong Corporate Tax Rates 2026
Tax Calendar and Filing Deadlines
Are Capital Gains and Crypto Profits Really Tax-Free?
Territorial Source Principle and the IRD Source Test
How the 0% Offshore Claim Actually Works
Evidence Checklist for an Offshore Claim
Why Offshore Claims Get Rejected
Who Is Affected by the FSIE Regime?
Global Minimum Tax and Hong Kong Top-up Tax
Salaries Tax and Dividends for Company Owners
Mandatory Non-Tax Government Fees (2026)
Effective Tax in Three Company Profiles
Hong Kong-Sourced vs Offshore-Claimed Profits
Hong Kong tax rates for companies are 8.25% on the first HK$2,000,000 of assessable profits and 16.5% on the remainder. There is no VAT or general sales tax, no separate capital gains tax, no withholding tax on dividends or interest, and no estate duty. Profits sourced outside Hong Kong may fall outside profits tax under the territorial source principle. However, the claim that "incorporating in Hong Kong automatically means 0% tax" is not correct.
What determines the tax outcome is not where the company is registered or where its bank account sits, but what the taxpayer did to earn the profit and where it was done. A company must make the offshore claim in its profits tax return and support it with contracts, correspondence, shipping records and service delivery evidence. Members of multinational groups must also consider the FSIE regime, and groups with consolidated revenue of EUR 750 million or more must consider the Hong Kong minimum top-up tax (HKMTT).
Short answer
Setting up a Hong Kong company does not create a tax-free structure by itself. Hong Kong-sourced profits are taxed at 8.25%–16.5%. Profits proven to be sourced outside Hong Kong may escape profits tax, subject to the FSIE regime and global minimum tax rules.
Hong Kong's tax system rests on three direct taxes: profits tax on business profits, salaries tax on employment income and property tax on rental income from Hong Kong real estate. Stamp duty applies separately to certain documents and transactions.
The Financial Services and the Treasury Bureau (FSTB) states on its official tax policy page that Hong Kong levies no value-added or sales tax, no capital gains tax, no withholding tax on dividends and interest, and no estate duty. That said, "no capital gains tax" does not mean every disposal is tax-free: whether a transaction is a capital investment or a trading activity carried on to make a profit is determined separately.
| Tax | Status | Core rule as at 2026 |
|---|---|---|
| Profits tax | Yes | Two-tiered: 8.25% and 16.5% for corporations |
| Salaries tax | Yes | Progressive 2%–17%, or the standard rate calculation, whichever is lower |
| Property tax | Yes | 15% on net assessable value, after a 20% statutory allowance |
| Stamp duty | Yes | 0.1% per side on transfers of Hong Kong stock; property rates vary by transaction |
| VAT / sales tax | No | No general VAT or sales tax on goods and services |
| Capital gains tax | No separate tax | Genuine capital gains are not taxed; trading profits can fall under profits tax |
| Dividend withholding tax | Generally none | No general withholding on dividends paid by Hong Kong companies |
| Interest withholding tax | Generally none | No general interest withholding; royalty payments are assessed separately |
| Estate duty | No | Abolished for deaths occurring on or after 11 February 2006 |
| Social security tax | No | MPF retirement contributions apply, but they are not an income tax |
Official source:Hong Kong FSTB – Prevailing Tax Policy
Hong Kong applies a two-tiered profits tax system to corporate profits. The rates have been unchanged since the year of assessment 2018/19 and still apply in 2026.
| Assessable profits | Corporation | Unincorporated business |
|---|---|---|
| First HK$2,000,000 | 8.25% | 7.5% |
| Above HK$2,000,000 | 16.5% | 15% |
Within a group of connected entities, only one nominated entity may use the lower first tier. Structures with several Hong Kong companies therefore do not get the reduced tier for each company automatically. The group elects which entity claims it in each year of assessment.
A limited company with HK$3,000,000 of assessable profits that is entitled to the two-tiered rates pays:
The example ignores tax deductions, brought-forward losses and special exemptions.
Under the 2026–27 Budget measures, final profits tax, salaries tax and tax under personal assessment for the year of assessment 2025/26 are reduced by 100%, capped at HK$3,000 per case. The legislation was passed by the Legislative Council on 13 May 2026 and gazetted on 22 May 2026. The IRD applies the reduction automatically in the final assessment; no separate application is needed.
Note: The reduction applies only to the final tax for 2025/26. It does not remove the provisional tax for the same period, which must still be paid on time. Excess payments are set off against later tax or refunded.
Losses can be carried forward indefinitely and set off against future assessable profits of the same trade. Hong Kong has no general loss carry-back mechanism.
Official sources:IRD – Profits Tax Rates, IRD – 2026–27 Budget Tax Measures
The Hong Kong year of assessment runs from 1 April to 31 March. Companies file based on their own accounting year-end. The most common mistake among new companies is assuming that no return means no obligation.
| Obligation | Timing and detail |
|---|---|
| First profits tax return | A newly registered business generally receives its first profits tax return some 18 months after the date of commencement of business or incorporation |
| Filing deadline | Normally one month from the date printed on the return; a block extension by accounting date code is available through a tax representative |
| Documents to file | Audited financial statements and a tax computation; dormant companies and certain entities not required to be audited are the exception |
| Record keeping | Business records must be kept for at least 7 years; failure without reasonable excuse carries a fine of up to HK$100,000 |
| Provisional tax | Provisional profits tax is charged for the current period and set off against the following year's final tax |
| Annual return NAR1 | Filed with the Companies Registry within 42 days of the incorporation anniversary – a separate obligation from the tax return |
Official sources:GovHK – Profits Tax Return, IRD – Completion of Profits Tax Returns, IRD – Record Keeping
Hong Kong has no separate capital gains tax. Even so, it is wrong to treat every gain from selling shares, property, crypto assets or other holdings as automatically tax-free.
The IRD looks at the badges of trade: why the asset was acquired, how long it was held, how frequently transactions occur, how the purchase was financed, why it was sold, and whether the activity was carried out within a business organisation. If the gain arises from the appreciation of a capital asset, it may fall outside tax. If the buying and selling is part of a profit-making scheme or a trade, the gain can be chargeable to profits tax.
A one-off disposal of a long-term investment and the operating profit of a business that trades crypto assets regularly do not produce the same outcome. Mining, staking and frequent trading income are generally treated as indicators of a trade. For members of multinational groups, disposal gains sourced outside Hong Kong may additionally fall under the FSIE rules.
Official source:IRD – Profits Tax
Hong Kong does not tax a company's worldwide income based on where it is incorporated. Three conditions are generally assessed together for a profits tax charge:
The IRD's core approach, set out in DIPN 21, is the operations test: "one looks to see what the taxpayer has done to earn the profit in question and where he has done it." Source is a hard, practical matter of fact rather than a question of legal form. Being incorporated in Hong Kong, invoicing from a Hong Kong company or receiving funds into a Hong Kong bank account does not by itself make a profit Hong Kong-sourced. Equally, having foreign customers or goods that never enter Hong Kong does not by itself create an offshore result.
In trading, the "place where the contract was made" is not simply where it was signed: negotiation, conclusion and execution of terms are examined together. Transactions carried out by a Hong Kong team over the phone, by email or online can be treated as effected in Hong Kong. For service income, where substantial activities take place both inside and outside Hong Kong, an apportionment of profits may be possible on the facts.
| Income type | Core source test | Factors that strengthen an offshore claim |
|---|---|---|
| Trading in goods | Where the purchase and sale contracts were negotiated, concluded and carried out | Profit-generating operations for both contracts take place outside Hong Kong, supported by order and negotiation records |
| Service income | Where the services giving rise to the fees were performed | Service staff and the substantive output sit outside Hong Kong; any partial Hong Kong activity is apportioned on the facts |
| Commission income | Where the activity bringing buyer and seller together was carried out | All intermediary activity generating the commission takes place outside Hong Kong |
| Interest income | For non-financial businesses, where the funds were first made available to the borrower | Funds are provided to the borrower outside Hong Kong; FSIE conditions are also met where applicable |
| Manufacturing profit | Where the goods are manufactured | Manufacturing takes place outside Hong Kong and the company's actual role is documented |
Official source:IRD – DIPN 21: Locality of Profits
The offshore profits exemption is often marketed as a "Hong Kong offshore tax exemption". It is not a permanent licence or certificate. The company asserts in its profits tax return that specific profits of that period are sourced outside Hong Kong. The IRD may accept the claim, ask for further information, or assess the profits as Hong Kong-sourced.
| 1 | Prepare the accounting and audit file Hong Kong limited companies must have their annual financial statements audited, apart from the dormant company exception. Audited accounts and a tax computation are filed with the profits tax return. Offshore profits must be separated from Hong Kong-sourced income in the books. |
| 2 | Track the first profits tax return The IRD normally issues a new business's first profits tax return about 18 months after commencement of business. That clock runs from when trading starts, not simply from incorporation. Even without a return, an obligation to notify chargeability can arise once assessable profits exist. |
| 3 | State the offshore claim in the return The tax computation identifies the profits treated as non-Hong Kong sourced and explains the underlying facts. There is no separate "0% certificate"; the claim is part of the periodic profits tax filing. |
| 4 | Answer IRD queries with evidence The IRD may ask how customers and suppliers were found, who negotiated the contracts and where, where services were performed, how goods moved, where staff work and how decisions were made. Answers should not be narrative alone; they need transaction samples and contemporaneous records. |
| 5 | Re-test the facts every year A previous year's outcome does not automatically cover a changed business model. Adding Hong Kong staff, a warehouse, a sales team or service activity can change the source result for the following period. |
The documents the IRD asks for vary by business model. The checklist below forms a strong starting file for most trading and service companies:
Documents created at the time of the transaction are far stronger than a narrative reconstructed years later. Tax and business records must be kept for at least seven years, and FSIE-covered MNE entities are subject to additional retention requirements.
Selling to a foreign customer is not enough for profits to be treated as offshore. If the contracting and service activities that generate the profit were carried out in Hong Kong, the profit can be Hong Kong-sourced.
Signing a contract electronically from abroad offers no protection if negotiation and conclusion were handled by the Hong Kong team.
Invoices, contracts, bank movements, logistics documents and email records that describe different transaction flows weaken the claim.
Companies operating both inside and outside Hong Kong that do not apportion income and expenses appropriately undermine the credibility of the amount declared as offshore.
An offshore claim requires proof that the profit-generating activities took place outside Hong Kong. Saying "we have no office in Hong Kong" does not show that the activity happened somewhere else.
Boilerplate answers with no transaction examples, or answers that contradict the original filing, increase the risk of further enquiry and assessment.
The Foreign-sourced Income Exemption (FSIE) regime applies only to entities that are members of a multinational enterprise (MNE) group and carry on a trade, profession or business in Hong Kong. Standalone companies that are not part of a consolidated group are generally outside the regime.
| Covered foreign-sourced income | In scope from | Main condition |
|---|---|---|
| Interest | 1 January 2023 | Economic substance requirement |
| Dividends | 1 January 2023 | Economic substance or participation requirement |
| Intellectual property income | 1 January 2023 | Nexus requirement (R&D fraction) |
| Equity interest disposal gains | 1 January 2023 | Economic substance or participation requirement |
| Other disposal gains | 1 January 2024 | Economic substance requirement |
The participation requirement asks for a holding of at least 5% maintained for 12 continuous months. Anti-abuse conditions also apply: the underlying income must have been taxed abroad at 15% or more, certain hybrid arrangements are excluded, and arrangements lacking genuine commercial substance do not qualify.
Where such income is received in Hong Kong by an MNE entity and the applicable economic substance, participation, nexus or intra-group transfer relief conditions are not met, the income can be deemed Hong Kong-sourced and charged to profits tax.
Active trading profits and service income are not among the FSIE income categories; the classic source test applies to them. Still, the same company can have trading income tested under the classic rules and interest or dividend income tested under FSIE in the same period.
Official source:IRD – Foreign-sourced Income Exemption
Hong Kong has implemented the OECD Pillar Two global minimum tax and the Hong Kong minimum top-up tax (HKMTT) for fiscal years beginning on or after 1 January 2025.
The rules target MNE groups with annual consolidated revenue of EUR 750 million or more in at least two of the four fiscal years immediately preceding the current year. For in-scope groups, low-taxed Hong Kong profits can trigger a top-up that brings the effective tax rate to 15%. For large multinational groups, therefore, a conclusion that offshore profits are definitively taxed at 0% cannot rest on territorial source analysis alone.
This section is not aimed at the typical SME or founder-owned company, but it is a mandatory part of 2026 tax planning for large group subsidiaries.
Official source:IRD – Global Minimum Tax and HKMTT
Hong Kong imposes no general withholding tax on dividends paid by a Hong Kong company. The shareholder's reporting and tax obligations in their country of residence continue to apply. Dividends received by MNE entities from foreign subsidiaries are separately subject to the FSIE rules.
Salaries tax is computed under two methods, and the taxpayer pays the lower of the two:
| Method | Base | Rate |
|---|---|---|
| Progressive rates | First HK$50,000 of net chargeable income | 2% |
| Next HK$50,000 | 6% | |
| Next HK$50,000 | 10% | |
| Next HK$50,000 | 14% | |
| Remainder | 17% | |
| Standard rates (two-tiered) | First HK$5,000,000 of net income before allowances | 15% |
| Remainder | 16% |
Director's fees and employment income are not treated identically. Income from a directorship in a Hong Kong company and income from an employment exercised abroad are analysed differently for source purposes. Simply labelling a payment to a founder as "salary" or "director's fee" in a contract does not determine the outcome.
Official source:IRD – Allowances, Deductions and Tax Rate Table
Since 17 November 2023, stamp duty on transfers of Hong Kong stock is 0.1% for each of the buyer and the seller (0.2% in total). A fixed duty of HK$5 applies to the instrument of transfer; for a voluntary disposition inter vivos, an additional 0.2% of the value of the stock is charged. The obligation also applies where the shares of a Hong Kong company are transferred to a foreign buyer.
Owners with rental income from Hong Kong property pay property tax at 15%. The base is calculated as follows: rental income less irrecoverable rent gives the assessable value; rates paid by the owner are deducted; a 20% statutory allowance for repairs and outgoings is then applied. The remainder is the net assessable value, multiplied by 15%.
Example: Annual rent of HK$120,000 with no irrecoverable rent and no rates paid by the owner: HK$120,000 − HK$24,000 (20% allowance) = HK$96,000 net assessable value × 15% = HK$14,400 property tax.
Official sources:GovHK – Stamp Duty Rates, GovHK – How Property Tax is Computed
Even a Hong Kong company that pays no tax must pay certain government fees every year. These are not taxes, but they are frequently left out of cost calculations. The business registration fee increased for certificates commencing on or after 1 April 2026.
| Item | Amount (HK$) | Detail |
|---|---|---|
| Business registration certificate (1 year) | 2,200 + 150 levy = 2,350 | For certificates commencing 1 April 2026 – 31 March 2027 |
| Business registration certificate (3 years) | 5,720 + 450 levy = 6,170 | Three-year option for the same period |
| Incorporation fee (electronic) | 1,545 | Local company limited by shares; HK$1,720 for a hard-copy application |
| Annual return NAR1 | 105 | If delivered within 42 days of the return date; late filing rises in steps up to HK$3,480 |
| Branch registration certificate (1 year) | 80 + 150 levy = 230 | For businesses with a registered branch |
Company secretary, registered address, bookkeeping and mandatory audit fees come on top. For a full breakdown of setup and running costs, see our Hong Kong company registration cost guide and our Hong Kong company formation service page.
Official sources:IRD – List of Current Charges, Companies Registry – Major Fees
Founders evaluating Hong Kong usually look at Singapore and the United Arab Emirates at the same time. The core tax parameters of the three jurisdictions are set out below.
| Criterion | Hong Kong | Singapore | UAE |
|---|---|---|---|
| Corporate tax | 8.25% / 16.5% (two-tiered) | 17% flat | 0% up to AED 375,000; 9% above |
| VAT / sales tax | None | GST 9% | VAT 5% |
| Taxation principle | Territorial (source-based) | Territorial with remittance basis | Residence-based; 0% on qualifying free zone income |
| Dividend withholding | None | None | None |
| Capital gains tax | No separate tax | No separate tax | No separate tax |
| Global minimum tax | HKMTT from 1 January 2025 | In force | In force |
The rates above reflect the headline rules; exemptions, reliefs and special regimes must be assessed separately in each jurisdiction. To go deeper on the alternative, see our Singapore company formation page.
The same profit figure produces very different tax outcomes depending on the business model. The three profiles below show how the source test works in practice.
| Profile | Activity | Likely tax outcome |
|---|---|---|
| A – E-commerce | Founder lives in Hong Kong; supplier negotiations and marketplace management are run from Hong Kong | Profits are most likely Hong Kong-sourced: 8.25% up to HK$2,000,000 and 16.5% above |
| B – Consulting | Sole owner lives abroad, services are performed abroad, no staff or office in Hong Kong | An offshore claim is arguable, but residence, place of effective management and CFC rules in the owner's country must be analysed |
| C – Group holding | Member of a consolidated MNE group receiving dividends and interest from foreign subsidiaries | The classic source test is not enough: FSIE economic substance or participation conditions apply, and HKMTT if the group is at the EUR 750 million threshold |
The profiles are illustrative and do not constitute a tax opinion for any specific company. The real outcome depends on how the transaction flow is evidenced.
An offshore position is not automatically the lowest-risk, lowest-cost route. A business with a genuine sales and management team in Hong Kong may be more consistent declaring Hong Kong-sourced profits. Conversely, companies whose profit-generating activities really do take place in other countries can defend an offshore claim with a strong evidence chain.
| Criterion | Hong Kong-sourced profits | Profits accepted as offshore |
|---|---|---|
| Profits tax | 8.25% / 16.5% under the two-tiered system | No profits tax on that income; FSIE and Pillar Two reserved |
| Filing | Profits tax return with supporting documents | Same filing obligation plus the offshore explanation and evidence |
| Audit | Required for limited companies apart from the dormant exception | No tax due does not remove the audit obligation |
| Burden of proof | Standard accounting and tax computation | A fuller file showing where profit-generating activities took place |
| Typical case | Contracting and service activity in Hong Kong | Contracting, service or intermediary activity carried out outside Hong Kong |
| Continuity | Declared every year of assessment | Business model and transaction flow re-tested every year |
A 0% result in Hong Kong does not switch off tax in the owner's home country. Most developed jurisdictions operate controlled foreign company (CFC) rules that attribute the undistributed profits of a low-taxed foreign subsidiary to the domestic parent or shareholder. Germany, for example, lowered its low-tax threshold in section 8(5) of the Foreign Tax Act (AStG) from 25% to 15% for fiscal years beginning after 31 December 2023, which brings many Hong Kong structures into scope. The United Kingdom, Australia, Canada and most EU member states run comparable regimes.
Beyond CFC rules, three further points regularly decide the outcome: the place of effective management (a Hong Kong company managed from abroad can become tax resident there), transfer pricing on related-party transactions, and foreign asset reporting obligations. This is why a Hong Kong offshore claim should be modelled on the home-country side first, by shareholder type and income stream.
Treaty check before you structure
Hong Kong has comprehensive double taxation agreements with the United Kingdom (in force 20 December 2010), the Netherlands, France, Austria and Switzerland, among more than 45 jurisdictions. Germany is not on that list, and Hong Kong's agreement with Türkiye entered into force on 30 January 2026 but applies in Hong Kong only from the year of assessment 2027/28. Entry into force and the date a treaty takes effect for particular taxes are not the same thing.
Official sources:IRD – Comprehensive Double Taxation Agreements, German Foreign Tax Act – section 8 AStG
To assess a Hong Kong structure across incorporation, accounting and banking, see our Hong Kong company formation guide and the detailed Hong Kong company registration cost breakdown.
For a source and tax pre-assessment based on your actual transaction flow, request a free consultation.
Author: Turgut Akkuš – Accounting and Tax Specialist, World Company Setup
Legal review: Rabia Kahraman, Attorney at Law – International Trade and Tax Law
Disclaimer: Rates, fees and legislation were verified on 20 August 2026 against the IRD, GovHK, FSTB, Companies Registry, IRAS and UAE official sources. The tax outcome depends on each company's transaction flow and residence position. This content is general information and does not replace legal or tax advice.
Hong Kong corporations pay profits tax at 8.25% on the first HK$2,000,000 of assessable profits and 16.5% on the remainder. Unincorporated businesses pay 7.5% and 15%. Within a group of connected entities, only one nominated entity may claim the two-tiered rates. Profits accepted as sourced outside Hong Kong may attract no profits tax at all, subject to the FSIE regime and the global minimum tax rules.
No. Hong Kong levies no value-added tax and no general sales tax on goods and services, as confirmed by the Financial Services and the Treasury Bureau. Stamp duty still applies to specific transactions such as transfers of Hong Kong stock and property, and some sectors are subject to separate duties and levies.
It is the common industry term for profits sourced outside Hong Kong falling outside profits tax under the territorial source principle. It is not an automatic exemption and there is no separate 0% certificate. The company must claim it in the profits tax return for the relevant period and show, with documents, where the profit-generating operations took place. The IRD can request further information or reject the claim.
Through contracts, quotations and negotiation correspondence, purchase orders, invoices, bank records, bills of lading and shipping documents, service delivery records, staff locations, board decisions and travel records. The IRD's core question, set out in DIPN 21, is what the taxpayer did to earn the profit and where. Evidence created at the time of the transaction is far stronger than a reconstruction years later.
Hong Kong has no separate capital gains tax. However, if a disposal of an asset or crypto holding forms part of a trade, the gain can fall under profits tax. The outcome depends on the purpose of acquisition, holding period, transaction frequency and whether the activity is carried on within a business organisation. Mining, staking and frequent trading are generally treated as trading indicators.
No. An offshore claim affects the profits that are taxed; it does not remove company law and filing obligations. Apart from the dormant company exception, a Hong Kong limited company must still prepare audited financial statements, file a profits tax return, deliver the NAR1 annual return and renew its business registration.
FSIE applies only to entities that are members of a multinational enterprise group. A standalone company that is not part of a consolidated group is generally outside the regime. For group members, foreign-sourced interest, dividends, intellectual property income and disposal gains must be tested against the economic substance, nexus or participation conditions.
Very possibly. Most developed countries apply controlled foreign company rules that attribute the profits of a low-taxed foreign subsidiary to the domestic shareholder. Germany, for example, lowered its low-tax threshold under section 8(5) AStG from 25% to 15% for fiscal years beginning after 31 December 2023. Place of effective management, transfer pricing and foreign asset reporting also apply. Note that Germany has no double taxation agreement with Hong Kong, while the United Kingdom, the Netherlands, France, Austria and Switzerland do.
For a business registration certificate commencing between 1 April 2026 and 31 March 2027, the fee is HK$2,200 plus a HK$150 levy, HK$2,350 in total; the three-year certificate is HK$6,170. The NAR1 annual return costs HK$105 if delivered on time. Electronic incorporation costs HK$1,545, or HK$1,720 on a hard-copy application. These are government charges, not taxes, and are payable even in a loss-making year.
A newly registered business generally receives its first profits tax return some 18 months after commencement of business or incorporation. The return is normally due one month from the date printed on it, and a block extension by accounting date code is available through a tax representative. Audited financial statements and a tax computation must be filed with it, and business records must be kept for at least seven years.
The IRD does not guarantee a fixed timeline. The date of the first return, the scope of follow-up enquiries, the number of transactions and the quality of the evidence all affect it. Because the first profits tax return is usually issued around 18 months after trading starts, the overall calendar should not be read as just the length of the query correspondence. For high-value, repeated transactions an advance ruling can reduce uncertainty.
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